December 8, 2014
Benchmarks guide your business
Use a powerful tool for construction productivity:

By J. Paul Lamarche

Editor's note: J. Paul Lamarche, known as JPL, enjoys unique respect as a financial advisor to Canada's green industry. He works tirelessly to help entrepreneurs know their true costs, improve productivity, charge the right price and prosper. See All you need is a calculator from June, 2005 for his basics on figuring your own overhead costs.

In my years of consulting, the largest overhead percentage I ever encountered was 67.5 per cent, and the lowest was 2.5 per cent. These were both very good companies, and they serve to represent the different extremes of the benchmark scale. Both companies were established, executed high quality work, and had good employees. One made money!

A low overhead percentage indicates that a company is lean and mean in relation to its competitors. It also indicates that the company is not just competitive, but profitable as well.


Smart businesspeople not only know their overhead percentage, they use it to set benchmarks to help them understand how they must use their crews to make money every day. You can state your overhead as a percentage of sales, or you can look at your annual overhead costs in dollars, and break that cost down further to see your costs per working day.

The landscape season varies across Canada, but in Toronto you can count on working about 175 days each year. My experience tells me a three-man crew with a truck, trailer and skid steer should generate $3,000 per working day in sales to achieve 32 per cent overhead -- Canada's industry standard overhead percentage. This benchmark sales figure includes your labour, equipment, material and disposal costs. When you multiply $3,000 by 175 working days for the season, you arrive at the annual sales productivity figure you must make to justify the crew: $525,000.

The more dollars above benchmark your crews generate, the lower your overhead becomes -- and the more money you make. Conversely, when dollar sales per vehicle are lower, your overhead burden per vehicle is higher. Improving your sales per crew means improving your productivity, and the single best way to make money in this business is to ensure productivity. High productivity lowers your overhead, improves your profits and allows you to pay your employees better wages!


Over the last 15 years, equipment has helped us achieve good productivity. There are all types of equipment that can improve efficiency, including mini-excavators, roll-off bins, mechanized wheelbarrows, blower trucks and better power tools.

To increase productivity, it is always better to purchase equipment than to hire more employees. For example, a $35,000 mini-excavator will last ten years, even if it is used five days per week for 35 weeks of the year. Let's take a look at what this machine costs per hour, assuming that the machine is worthless at the end of ten years. At 50 hours per week for 35 weeks, the mini runs 1,750 hours per year, or 17,500 hours over its life. It costs you only two dollars per hour. This machine effectively replaces one man, or makes the crew 35 per cent more productive. How does this productivity factor in the "more labour versus better equipment" argument? The numbers are strongly in favour of having the right machine for the right job.

I recommend that equipment costs for a productive, million-dollar company should not exceed 15 per cent of sales. This percentage represents $150,000 worth of equipment, and includes daily-use items such as trailers, skid steers, mini-excavators and power equipment.


We all know that prices and costs vary across Canada, but in general your labour costs should be 25 per cent of your net sales. Remembering that a benchmark is a goal you would like to reach, it is useful to look at your labour charge-out rates with benchmarking in mind. To calculate your rates at 32 per cent breakeven, take an hourly rate, divided by 68 per cent (100 per cent minus 32 per cent overhead). The two charts show benchmark charge-out rates for labour at 32 per cent, and how much more you must charge if your overheads weigh in at 40 per cent.


Ideally, administration costs should not exceed three per cent of sales -- lower is better. The trend today is to hire outside help. Competent, professional people working part-time, five hours per day, five days per week for 35 weeks of the year should be sufficient to maintain books, answer calls, do payroll and handle office work for a company generating $1 million in sales. If you pay this person $25 per hour, your cost is $21,875, or 2.19 per cent of sales. At $30 per hour, your cost goes up to $26,250 or 2.625 per cent of sales. Advertising and promotion should not exceed two per cent of sales, unless you are in a growth mode. Remember, over 85 per cent of your work comes from direct and indirect recommendations, and only two per cent of homes get new landscaping each year. The best ways to promote your company are investing in good signage, participating actively in trade and business associations and winning awards.

Bank charges should be about 0.25 per cent of sales. If your bank charges are higher, it may indicate a high rate of bad debt, over-financing or cash flow problems. Naturally, companies just starting out may face serious cash flow problems in the first year of business.

Again, looking at a million-dollar com-pany, annual truck and vehicle costs should not exceed $150,000. In other words, you should be able to manage with two mini-size dumpers (F350s, for example), and one company vehicle for estimating and supervision. Return on investment (ROI) for both equipment and vehicles should be between eight and ten per cent per year, depending on how you use them. Insurance for an operation of this size should cost no more than $7,500 -- unless you are a high risk.


You may wonder if running your business according to benchmark numbers is realistic. Ask yourself, "Can I charge this much and still be competitive?" The answer is, "Yes -- with benchmark overhead and productive equipment!" Remember, the critical factor is not price, but productivity. You can pay someone with a spade $49 per hour to excavate grass, or you can supply a $5,000 sod cutter and see the work done in a tenth of the time.

I urge you to follow the example of countless successful Canadian landscape industry professionals, and use the power of numbers to drive your prosperity.

From April 2008 Landscape Trades